Sales-tax bounce eases county budget pain

Hamilton County Commissioners Todd Portune, from left, Greg Hartmann and Chris Monzel faced less dire budget choices this year because the recovering economy has helped boost sales-tax receipts for the county.(Photo: The Enquirer/Carrie Cochran)

Before commissioners voted on Hamilton County's 2015 budget this week, they checked to see if any residents had emailed them with concerns or suggestions.

Nope, they were told. All was quiet.

The no-drama budget is a far cry from just a few years ago, when the recession, state budget cuts and tumbling tax revenue forced big job and spending cuts and turned public hearings into crowded, angry affairs.

The better news this time around is due in large part to a recovery in sales-tax collections, which this year could see their largest annual increase since 1998. The health of the sales tax is a big deal because it pays for both of Cincinnati's professional sports stadiums and makes up about one-third of the county's $200 million general fund budget.

When tax collections lag, the county has less money to pay for sheriff's patrols, social workers, court clerks, road repairs and various other things people expect their local government to do.

"We had a dreadful period," said John Bruggen, Hamilton County's budget director. "We've seen increases in five consecutive years now."

The growth has been modest, to be sure. But compared to the horror show that was the recession and its aftermath, the sales tax is healthy again. If projections hold, collections will climb about 6 percent this year compared to 2013. The result is a budget without the deep cuts that caused so much consternation just five years ago, when the county was hit by the steepest drop in sales-tax collections in at least 40 years.

Collections fell 1.4 percent in 2008 and 7.3 percent in 2009. That translated to a decline in tax revenue of more than $6 million and proved to be a double whammy because the county also counted on the tax to cover its stadium debt.

Today, the half-cent sales tax that supports the general fund is expected to bring in about $70 million a year, as is the half-cent tax that pays for the stadiums.

Five years ago, the same taxes brought in about $60 million apiece for the county and the stadiums. The dip in collections hit especially hard because consultants on the stadium deal had projected 3 percent annual growth for the life of the tax. At the time, in 1995, that didn't seem out of line because the tax had averaged more than 7 percent growth since 1970.

Two recessions, including the worst economic downturn since the Great Depression, changed all that. Annual collections today are about $20 million behind those original projections.

"We're so off where they'd predicted we'd be," said Auditor Dusty Rhodes, a longtime critic of the stadium deals. "Everything they talked about is predicated on that big growth, and it didn't happen."

Although the numbers are better now, the county is far from flush. The budget remains tight – most departments will see zero growth in their budgets next year – and county officials remain skittish about counting too much on the sales tax.

For budgeting purposes, they now assume annual growth of only about 1 percent. "We got burned in the recession," Bruggen said. "We're still being very conservative."

Their caution isn't rooted in just the prospect of another economic downturn. They also worry about fundamental changes in the economy that have weakened sales-tax collections over the past few decades, most notably a continuing shift to a service-based economy. Since sales taxes in Ohio mostly cover purchased goods, the growing service sector is largely exempt from the tax, which means less money for the county and other local governments.

County officials have other challenges, too. Money from property tax suffers when property values fall, and the state continues to trim the local government fund that sends about $11 million to the county each year.

Investment income is another problem, thanks to rock-bottom interest rates that have hammered the county's investments in bonds and other ultra-safe options. Interest from investments now is about $5 million a year, compared to $20 million a decade ago.

Commissioner Greg Hartmann said all that adds up to more tight budgets to come, even if sales-tax collections are making the annual ritual a little less painful than it used to be.

"There's no such thing as an easy budget in Hamilton County," he said.

SALES TAX COLLECTIONS

The half-cent sales tax that makes up the largest share of Hamilton County's budget is bouncing back from two recessions in the past 15 years. Annual collections since 2000, with percent changes from the previous year in parenthesis (percentages are actual change, but may not match precisely because of rounding):

2000: $60.9 million (+2.1 percent)

2001: $59.3 million (-2.7 percent)

2002: $60.6 million (+2.2 percent)

2003: $60.4 million (-0.3 percent)

2004: $63.5 million (+5.2 percent)

2005: $64.1 million (+0.9 percent)

2006: $64 million (-0.1 percent)

2007: $66.4 million (+3.6 percent)

2008: $65.4 million (-1.4 percent)

2009: $60.6 million (-7.3 percent)

2010: $62.2 million (+2.5 percent)

2011: $65.1 million (+4.6 percent)

2012: $66.7 million (+2.5 percent)

2013: $69.6 million (+4.5 percent)

Source: Hamilton County budget office

WHERE IT GOES

Those who make purchases in Hamilton County pay sales tax of 6.75 percent, the second lowest rate among Ohio's 88 counties and the lowest among the state's major cities. Here is how that breaks down:

–5.75 percent: state sales tax which goes to Columbus.

–0.5 percent: Hamilton County general fund

–0.5 percent: Debt service on costs to build Great American Ball Bark and Paul Brown Stadium.